How to use Hong Kong as a Fulfillment Center: By FloShip

These days it’s common that Ecommerce companies don’t start with one target market in mind. Instead, European importers start selling in the US and EU on day one, and vice versa.

For Startups, it’s expensive to ship stock from the manufacturer to several countries – not to mention how complicated it can be to get a grip of taxes and customs procedures in all those countries.

This is why more companies are using Hong Kong as their main fulfillment center. From Hong Kong, a freeport in southern China with no import duties, you can ship products directly to customers in the US, Europe and the Asia Pacific Region.

In this interview with Steve Suh at Floship in Hong Kong, you will learn how your business can save time and money using Hong Kong as a fulfillment center.

Steve Suh, please tell us a bit more about yourself and your work at Floship in Hong Kong

I am Korean-American from Philadelphia. I Embarked on my start-up career in Shanghai, where I got involved with a Sequoia Capital backed start-up called MyLuxBox, a cosmetics subscription box start-up that later got acquired by jumei.com.

After that exit, I joined China’s largest cross-border e-commerce logistics company 4PX, where I gained knowledge on the industry and led me to kick-start Floship, a platform catered to international merchants – whereas 4PX was China merchant focused.

Regarding work at Floship Hong Kong, started in February 2015, went though a couple rounds of funding led by prominent Asia VC’s and angel investors.

To date we’ve raised more than USD 7 million and, as we continue growing and adding new products, for example, we are soon launching a FBA prep service, a China ecommerce B2C inbound channel, global warehouses and a few other projects we are excited about but aren’t ready to disclose yet that will continue to make it easier for online sellers of all sizes to take advantage of marketplaces globally and participate in the world economy in ways never before possible.

Many of our readers want to know if it’s possible to deliver products, one piece at a time, directly from Mainland China or Hong Kong – to their customers all over the world. Is this possible today?

Yes. This is one of Floship’s most popular offerings.

As far as whether or not this model is possible – it is now at a mature state: it has been going on for over 10 years .

Due to the high volume of e-commerce cross border shipments from China and Hong Kong, there are now cost effective and fast shipping options that have opened up to facilitate cross border trade.

What’s the shipping cost per unit I should expect?

Of course, as I’m sure any of your readers who have ever shipped anything, cost, when it comes to shipping is dependent on many factors; such as weight, dimensions, and method of shipping.

But, to put things into perspective, for example, say you wanted to ship an iPhone weighing about 200g; this you can ship to the US for a little less than US$5 with a relatively fast shipping time of about four to eight days and delivered last mile by USPS. At that rate, it’s comparable to domestic shipping rates.

Does Floship charge only for freight or are there other fees to expect when using a fulfillment center in Hong Kong?

For storage and pick & pack, we charge in a tiered system. The more orders you ship, the cheaper the storage and pick & pack rates become. We charge per item picked.

Are there any minimum volumes or thresholds to be aware of when dropshipping from Hong Kong?

We have a 300 parcel shipment minimum and there is a US$1,000 monthly spend minimum, or retainer, for those that do not meet the shipment thresholds.

In our experience, for clients that do not meet the monthly shipping thresholds but are happy to pay the US$1,000 per month retainer, they tend to have products with higher margins.

On the other hand, for sellers with low margin goods that cannot meet our 300 order per month minimum shipping requirement the US$1,000 per month retainer often is too high to be profitable for them. In cases like this Floship would not be a good fit.

In your experience, is it more common to use Hong Kong as a fulfillment hub for the Asia Pacific market, or also Europe and America?

I’m clearly biased because I’m based here and because it is my focus but, in my experience Hong Kong is the preferred and most common fulfillment hub.

Despite my own personal affinity for the place there are more objective reasons that makes Hong Kong one of the most strategic fulfillment hubs in the world for global shipping, mainly due to the high international shipping costs to ship from the other markets you mentioned.

Not to mention, Hong Kong’s proximity to mainland China, it’s status as a duty free port and the empirical data proves this out, as far as air cargo – Floship’s specialty – is concerned. For example, HKTDC reports, Hong Kong to, “rank as the world’s busiest airport in terms of international cargo throughput since 2006”.

Actually, it was for this very specific reason that Floship was founded in Hong Kong.

What’s the delivery time from Hong Kong to, say, the US or Europe?

When choosing Express Couriers like FedEx or DHL, you can ship within two to three days worldwide and then, for traditional postal methods the delivery window tends to be more between 7-14 days on average.

With that said, there are also hybrid solutions, something often referred to as postal injection in industry speak, which crossover between postal and Express that will allow you to ship to major destinations in as fast as 4 days.

What are the benefits of shipping from Hong Kong, rather than Mainland China?

Firstly, Hong Kong is a free trade port and you can qualify for an export tax rebate of up to 17% upon bringing your stock into Hong Kong.

You can work with a reliable postal option such as Hong Kong Post (as opposed to China Post) where tracking is more stable and less incidence of lost parcels.

Do I need to open a Hong Kong company to use it as a logistics hub?

No.

If I use Hong Kong as my logistics hub, where do I pay taxes?

Hong Kong having the status as a free trade port, so, with the exception on only four dutiable goods. Those being tobacco, hydrocarbon oil, alcoholic beverages and methyl alcohol. The import and export clearance regulation in Hong Kong are really the best in the world and can be digested in under a minute right here (HK Customs official site).

I’m not a tax adviser but – the general practice and law as I understand it is–for people who do not reside in Hong Kong tax is exempted for income not sourced in Hong Kong.

So when an individual is using Hong Kong as a storage or transshipment center for their goods and is not vending products in the SAR, then there are no taxes to pay.

Taxes in one’s home country or the destination country of the goods would be subject to the jurisdictions of the destination port. While an individual tends to be taxed based on their country of residency

One of the key benefits of cross border shipping is that for large e-commerce markets such as USA and Australia, any shipment declared under US$800 can enjoy duty free customs clearance where the seller or the buyer would not have to worry about duties or taxes.

Hence, Floship’s B2C model – we have really built the company based on this strategy and offer that opportunity to our clients and their customers.

Thank you. How can Floship help our readers take the next step and start using Hong Kong as their logistics hub?

Thanks for this opportunity to reach your readers.

To help people understand the opportunities Floship offers, they can visit our website at www.floship.com, we also have a popular blog that may be of interest to those actively participating in the crossborder ecommerce space, you can find that here.

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About Fredrik Gronkvist

Fredrik Gronkvist has been based in Shanghai since 2010 and is our main contributor. In addition, his content has also been featured in Bloomberg, Quartz Magazine, Global Sources, Alibaba, China Chief Executive and more. You can send him an email on fredrik@chinaimportal.com or via Linkedin.